Alzheimer's disease (AD) is one of the most common neurodegenerative disorders and causes cognitive impairment and memory deficits of the patients. The mechanism of AD is not well known, due to lack of human brain models. Recently, mini-brain tissues called organoids have been derived from human induced pluripotent stem cells (hiPSCs) for modeling human brain development and neurological diseases. Thus, the objective of this research is to model and characterize neural degeneration microenvironment using three-dimensional (3D) forebrain cortical organoids derived from hiPSCs and study the response to the drug treatment. It is hypothesized that the 3D forebrain organoids derived from hiPSCs with AD-associated genetic background may partially recapitulate the extracellular microenvironment in neural degeneration. To test this hypothesis, AD-patient derived hiPSCs with presenilin-1 mutation were used for cortical organoid generation. AD-related inflammatory responses, matrix remodeling and the responses to DAPT, heparin (completes with heparan sulfate proteoglycans [HSPGs] to bind Aβ42), and heparinase (digests HSPGs) treatments were investigated. The results indicate that the cortical organoids derived from AD-associated hiPSCs exhibit a high level of Aβ42 comparing with healthy control. In addition, the AD-derived organoids result in an elevated gene expression of proinflammatory cytokines interleukin-6 and tumor necrosis factor-α, upregulate syndecan-3, and alter matrix remodeling protein expression. Our study demonstrates the capacity of hiPSC-derived organoids for modeling the changes of extracellular microenvironment and provides a potential approach for AD-related drug screening.